Blanchett v Te Kopua Investments Limited

[2013] NZHC 2130

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2013-419-26 [2013] NZHC 2130

BETWEEN

DAVID MURRAY BLANCHETT AND COLIN THOMAS MCCLOY

Applicants

AND

TE KOPUA INVESTMENTS LIMITED

Respondent

Hearing:

23 July 2013

Appearances:

S Jass for Applicants

No appearance for Respondents

Judgment:

22 August 2013

RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on Wednesday 22 August 2013 at 10.00 am pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:………………………….

Counsel:
S M Jass, Tompkins Wake, Hamilton

BLANCHETT & MCCLOY v TE KOPUA INVESTMENTS LTD [2013] NZHC 2130 [22 August 2013]

[1]   The applicants, Mr Blanchett and Mr McCloy, are the liquidators of Central Oil Distributors Ltd.

[2] Prior to being placed into the hands of the liquidators, Central Oil was an oil distributor based in Taupo. Central Oil and the respondent, Te Kopua Investments Limited, were related companies through their directors and shareholders. Relevantly, before his adjudication, Mr Thomas Gordon-Glassford was Central Oil’s director and a director of Te Kopua and a shareholder of both. He held 50% of the shares in Te Kopua which was Central Oil’s landlord.

[3]  Both companies financed their operations through advances from Kiwibank and were indebted to IRD for GST and income tax arrears: additionally, Te Kopua was in debt to Central Oil for $34,500 for assets purchased from Central Oil when it ceased trading.

[4] On 13 April 2011 the Commissioner of IRD commenced liquidation proceedings against Central Oil and on 27 June 2011 against Te Kopua. An order was made  placing Central Oil into liquidation on 3 October 2011. Te  Kopua however settled its debt with IRD and the liquidation proceedings against it were discontinued.

[5] For the purpose of settling its debt with IRD Te Kopua had borrowed a substantial sum from Kiwibank ($749,701) as part of a refinancing arrangement. In the relevant loan documentation Kiwibank required Te Kopua to pay Central Oil’s term loan account of $96,591.00 and on 13 September 2011 $96,534.52 from Kiwibank’s advance to Te Kopua was paid to Central Oil’s account to settle the term loan.

[6] The effect of the payment of $96,534.52 was twofold.  It cleared Central Oil’s term loan. Additionally it cleared Te Kopua’s debt to Central Oil of $34,500 and gave Te Kopua an asset in the form of a debt of $62,034.52 owed to it by Central Oil.

[7]      However, unbeknown to Te Kopua, Central Oil was to receive approximately

$50,000 directly into its Kiwibank current account from a creditor.   It seems Te

Kopua claims that if it had known of this it could have taken steps to reduce the amount of the advance of $96,534.52 to Central Oil correspondingly. Once aware of the creditor’s payment of $50,000 to Central Oil’s current account, Te Kopua arranged for Central Oil to pay $48,000 from that account as a refund. The refund was paid to Te Kopua on 21 September 2012. The effect of the payment was that the amount of Central Oil’s indebtedness to Te Kopua was reduced by the amount of the refund.  Instead of owing $62,034.52 Central Oil’s debt to Te Kopua was reduced by

$48,000 to $14,034.52.

[8] On learning of the refund, the liquidators took the view that the refund was an insolvent transaction and issued a notice under s 292 Companies Act 1993 to set it aside. Payment was not forthcoming: instead Te Kopua served a notice of objection under s 294(3). The liquidators now seek orders setting aside the refund as an insolvent transaction under s 294(5) and requiring Te Kopua to pay them the sum of

$48,000 plus statutory interest under s 87 of the Judicature Act 1908.

[9]    Mr Gordon-Glassford, who remains a bankrupt, has purported to file a notice of opposition and supporting affidavit on behalf of Te Kopua. He has also sought leave to appear for Te Kopua which I have declined in accordance with the court’s ruling in Re G J Mannix Ltd.[1] The onus remains nevertheless on the liquidators to show that the orders they seek should be made.

The liquidator’s case

[1] Re  G  J  Mannix  Ltd  [1984] 1 NZLR 309, applied in Commissioner  of  Inland  Revenue  v Chesterfields Preschools Ltd [2013] NZCA 53.

[10]    The liquidators say the refund of $48,000 made by Central Oil to Te Kopua is a payment that comes within the definition of an insolvent transaction in s 292.

[11] Section 292(3) defines a transaction to mean any of certain  steps  by  a company. The step relied on by counsel for the liquidators is in sub-paragraph (e):

paying money (including paying money in accordance with a judgment or an order of a court).

[12]    A transaction is defined in s 292(2) as an insolvent transaction if it:

(a)is entered into at a time when the company is unable to pay its due debts, and

(b)enables another person to receive more towards satisfaction of a debt owed by the company than the person would receive, or would be likely to receive, in the company’s liquidation.

[13]     Counsel for the liquidators submits that the transfer of $48,000 plainly was a payment of money in terms of s 292(3)(e). He relies on two main reasons:

(a)Firstly, the Kiwibank loan documentation shows unequivocally that the bank  required  payment  of  Central  Oil’s  term  loan  account  of

$96,591 from its advance to Te Kopua and that this is exactly what happened. The fact that Central Oil happened to receive approximately $50,000 into its Kiwibank current account at around the same time was not a factor the bank was obliged to take into account and is not relevant to the transaction that took place.

(b)Secondly, the full advance of $749,701 was made to Te Kopua on 2 September 2011 and the money advanced to Central Oil was not paid until 13 September. This, counsel submits, supports the liquidator’s contention that it was Te Kopua and not Kiwibank that made the payment.

[14]     Therefore the transfer of $48,000 was a payment of money in terms of s 292(3)(e).

[15]     The  liquidators  also  claim  that  the  transfer  amounts  to  an  insolvent transaction for these reasons:

(a)The transfer occurred in the restricted period.

(b)The payment of $96,534.52 meant that Te Kopua became a creditor of Central Oil in the amount of $62,034.52.

(c)Te Kopua received the $48,000 in partial repayment of its loan advance of $96,534.52 but would not have received this sum in the liquidation of Central Oil.

Analysis

[16]  It is for the liquidators to show that the payment of $48,000 by Central Oil to Te  Kopua  on  21  September  2011  did  constitute  “paying  money”  in  terms  of s 292(3)(e) and that it was an insolvent transaction in terms of s 292(2).

“Paying money”

[17]     By the objection that Te Kopua has made it is apparent that it:

(a)bases its objection on the proposition that there was an error on Kiwibank’s part in that when it applied funds from the Te Kopua advance to clear Central Oil’s loan account of $96,534.52 it overlooked that Central Oil had funds of approximately $48,000 in its current account, and

(b)contends that payment purportedly made on the basis of such an error cannot be a payment for the purpose of s 292.

[18] I accept counsel for  Kiwibank’s submission that as a matter  of  fact  the payment of $96,534.52 was made in accordance with the terms agreed by the parties and that there was no payment made by Kiwibank by mistake.

[19] I also find that a substance-focused approach should be applied when determining whether a transaction amounted to paying money in terms of s 292.[2] In the context in which the payment of the refund of $48,000 occurred, there was, in my opinion, a payment that credited Te Kopua with satisfaction of the debt. The fact that the arrangement could have been effected in another way is irrelevant. It was not, and it does not change what actually happened.

[2] Trans Otway Ltd v Shephard [2005] 3 NZLR 678 (CA).

[20]     Therefore  I  am  satisfied  there  was  a  payment  of  money  in  terms  of s 292(3)(e).

“An insolvent transaction”

[21]   It is plain on the evidence that, in accordance with s 292(2), when the refund of the $48,000 occurred, Central Oil was unable to pay its due debts. That transaction enabled Te Kopua to receive more towards satisfaction of the debt owed to it by Central Oil than it would have received in the liquidation of Central Oil.

Result

[22]     For the reasons I have discussed the liquidators are entitled to orders on their application and I make orders as follows:

(a)Pursuant to s 294(5) I set aside the payment of the sum of $48,000 as described in this judgment.

(b)Pursuant to s 295(a) I direct Te Kopua to pay to the as liquidators the sum of $48,000.

(c)Pursuant to s 295(a) I direct Te Kopua to pay to the liquidators the sum of $48,000, plus statutory interest of 5% per annum from the period between the date of commencement of the proceeding and the date of judgment under s 87 of the Judicature Act 1908.

(d)As costs follow the event under the statutory costs regime, Te Kopua is to pay the costs of the liquidators on a 2B basis, and disbursements fixed, if necessary, by the Registrar.

H Sargisson Associate Judge